UNIVERSITY OF ST. MARK AND ST. JOHN, PLYMOUTH
MBA 608 – BUSINESS ECONOMICS ASSIGNMENT 1D
THE POSSIBLE ANTICOMPETITIVE EFFECTS OF MERGERS AND ACQUISITIONS AND EVALUATION OF THE EFFECTIVENESS OF EXISTING REGULATIONS AIMED TO REDUCE ANTICOMPETITIVE PRACTICES IN GHANA.
COLLINS FRIMPONG OFORI
Definition of Mergers and Acquisition
The Main Idea
One plus one makes three: this equation is the special alchemy of a mergers or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind Mergers and Acquisition. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost - efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous, the terms mergers and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist; the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a mergers happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "mergers of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler - Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable. (Investopedia.com - the resource for investing and personal finance education. http://www.investopedia.com/university/mergers (Page 3 of 15). A purchase deal will also be called a merger when both Chief Executive Officers agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. Whether a purchase is considered a mergers or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders. Garbage (2007) in his thesis paper on International Mergers & Acquisitions, Cooperation and Networks in the e-business’ defines a mergers as “the combination of two or more companies in which the assets and liabilities of the selling firms are absorbed by the buying firm”. According to Gaughan (2002) “a mergers is a combination of two companies in which only one company survives and the merged company ceases to exist, whereby the acquiring company assumes the assets and liabilities of the merged company”. An acquisition also known as a takeover‖ is the buying of a company, the target‖ by another or the purchase of an asset such as plant or a division of a company. In the case of Vodafone...
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